Repatriation Ridiculousness Redux

by Douglas Holtz-Eakin

As I have argued previously (see “The Need for Pro-Growth Corporate Tax Reform” and “Quintessential McCain”), repatriation legislation appears to be the most potent reform that has a chance of getting across the 2011 finish line on a bipartisan basis. So it is disheartening to see liberal warhorses like the Center on Budget and Policy Priorities (CBPP) dragging out the same tired and mistaken critiques.

Here is the key point: It is simply not possible to evaluate the success or failure of previous repatriation efforts by focusing on the behavior of the repatriating firms alone. Some of those firms may choose to undertake financial transactions to retire debt, pay dividends, or repurchase shares — which is presented as a drawback of a repatriation tax policy. However, in the context of evaluating the stimulus bill, the Congressional Budget Office made the point that evaluating “the law’s overall effects on employment requires a more comprehensive analysis than can be achieved using the recipients’ reports.” Exactly, and the same is true of looking at the repatriating firms in isolation. The entire line of critique has no analytic foundation.

A complete analysis recognizes that those financial transactions have two effects. First, they put resources in the hands of other firms, households, pension plans, investors, and so forth, who in turn continue the chain of real purchases and financial transfers. Second, actions like share repurchases will raise share values. The improvement in valuations provides wealth that supports household spending and overall demand.

Repatriation may not be perfect. But the debate awaits real evidence of its shortcomings.